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Optimal Compensation Structure In Consumer Cooperatives Under Mixed Oligopoly

  • Michael Kopel

    (University of Graz)

  • Marco Marini

    (La Sapienza University)

The main aim of this paper is to derive properties of an optimal compensation scheme for consumer cooperatives (Coops) in situations of strategic interaction with profit- maximizing firms (PMFs). Our model provides a reason why Coops are less prone than PMFs to pay variable bonuses to their managers. We show that this occurs under price competition when in equilibrium the Coop prefers to pay a straight salary to its manager whereas the profit-maximizing rival adopts a variable, high-powered incentive scheme. The main rationale is that, due to consumers' preferences, a Coop is per se highly expansionary in term of output and, therefore, does not need to provide strong strategic incentives to their managers to expand output aggressively by undercutting its rival.

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File URL: http://host.uniroma3.it/centri/crei/pubblicazioni/workingpapers2012/CREI_05_2012.pdf
File Function: First version, 2012
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Paper provided by CREI Università degli Studi Roma Tre in its series Working Papers with number 0512.

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Length: 20 pages
Date of creation: 2012
Date of revision: 2012
Handle: RePEc:rcr:wpaper:05_12
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  1. Michael Kopel & Clemens Löffler, 2008. "Commitment, first-mover-, and second-mover advantage," Journal of Economics, Springer, vol. 94(2), pages 143-166, July.
  2. Murray Fulton & Konstantinos Giannakas, 2001. "Organizational Commitment in a Mixed Oligopoly: Agricultural Cooperatives and Investor-Owned Firms," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(5), pages 1258-1265.
  3. John S. Heywood & Guangliang Ye, 2009. "Delegation in a mixed oligopoly: the case of multiple private firms," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 30(2), pages 71-82.
  4. Michael Kopel & Clemens Löffler, 2012. "Organizational Governance, Leadership, and the Influence of Competition," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 168(3), pages 362-392, September.
  5. Marco Marini & Alberto Zevi, 2011. "Just One Of Us: Consumers Playing Oligopoly In Mixed Markets," Working Papers 0111, CREI Università degli Studi Roma Tre, revised 2011.
  6. Brent Hueth & Philippe Marcoul, 2009. "Incentive Pay for CEOs in Cooperative Firms," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(5), pages 1218-1223.
  7. David Kelsey & Frank Milne, 2008. "Imperfect Competition and Corporate Governance," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 10(6), pages 1115-1141, December.
  8. Kopel, Michael & Brand, Björn, 2012. "Socially responsible firms and endogenous choice of strategic incentives," Economic Modelling, Elsevier, vol. 29(3), pages 982-989.
  9. Vicente Cuñat & Maria Guadalupe, 2005. "How does product market competition shape incentive contracts?," LSE Research Online Documents on Economics 19894, London School of Economics and Political Science, LSE Library.
  10. Mikami, Kazuhiko, 2003. "Market power and the form of enterprise: capitalist firms, worker-owned firms and consumer cooperatives," Journal of Economic Behavior & Organization, Elsevier, vol. 52(4), pages 533-552, December.
  11. Lang, Mahlon G., 2002. "Strengthening Agricultural Cooperatives: An Inquiry Into Expert Beliefs," Research Reports 140061, University of California, Davis, Center for Cooperatives.
  12. Trechter, David D. & King, Robert P., 1995. "Executive Compensation Patterns and Practices in Minnesota and Wisconsin Cooperatives," Journal of Cooperatives, NCERA-210, vol. 10.
  13. Michael E. Sykuta & Michael L. Cook, 2001. "A New Institutional Economics Approach to Contracts and Cooperatives," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(5), pages 1273-1279.
  14. Konstantinos Giannakas & Murray Fulton, 2005. "Process Innovation Activity in a Mixed Oligopoly: The Role of Cooperatives," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(2), pages 406-422.
  15. Preyra, Colin & Pink, George, 2001. "Balancing incentives in the compensation contracts of nonprofit hospital CEOs," Journal of Health Economics, Elsevier, vol. 20(4), pages 509-525, July.
  16. White, Mark D., 2001. "Managerial incentives and the decision to hire managers in markets with public and private firms," European Journal of Political Economy, Elsevier, vol. 17(4), pages 877-896, November.
  17. Richards, Timothy J. & Klein, Kurt K. & Walburger, Allan M., 1998. "Principal-Agent Relationships in Agricultural Cooperatives: An Empirical Analysis from Rural Alberta," Journal of Cooperatives, NCERA-210, vol. 13.
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